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1. If the dollar-euro exchange rate, E($/euro), on 30 June 2016 is $0.50 per euro, then the euro-dollar exchange rate, E(euro/$), on the same date

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1. If the dollar-euro exchange rate, E($/euro), on 30 June 2016 is $0.50 per euro, then the euro-dollar exchange rate, E(euro/$), on the same date would be:

a.1.25

b.2.00

c.0.50

d.0.80

2. Suppose $1 = 10.5 pesos in New York and $1 = 9.6 pesos in Mexico City. Because of arbitrageurs, the exchange rate of E(peso/$) in New York will go ____ and, the rate in Mexico City will go _____.

a.up; down.

b.up; up.

c.down; up.

d.down; up.

3. Use the following figure to answer the question.

image text in transcribed
Exchange rate ($ per () SE 1.40- T 1.20-IT 1.00 - -- T DE 100 200 300 Euros (millions)

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